A trader friend sent me this list on December 7, 2004 (Pearl Harbor day). Although I told him that I agreed with nearly all of the sentiments expressed here, it is exceedingly difficult to use this as a timing mechanism. Indeed, many of these concerns were true in 2003 or 1998 for that matter.
I find it almost impossible to trade — at least short term — on Macro-Economics. Lets see how the market looks 3 months later.
Here are the quotes:
"Very little is written about what will happen when all the dollars, built up as foreign central bank and private holdings, get spent. Indeed, we believe that not only will the dollars get spent, but this spending will have massive inflationary implications for America."
–Richard Benson"Nothing has been a more reliable indicator for an upcoming recession as the price of Oil. Every major bear market, every major economic decline has been preceded by a large spike in oil prices. The 73-74 recession, recession of beginning 80’s and the recession of 2000. Oil prices jumped 80% between 1999 and 2000. Oil prices have been the most important indicator of major economic disasters. Whenever Oil prices rise about 80% from year ago levels, a fair chance does exist that a recession/bear market will follow."
–Stephen Leeb"Overall household indebtedness is up from $7 trillion to almost $10 trillion since 2000. On this sum, we estimate, the American consumer has an annual interest bill of more than $500 billion; a sum, by the way, that vastly exceeds his current income growth."
–Kurt Richebacher"The somber reality is that this credit excess has devastated the manufacturing sector. It has devastated the trade balance, and it has devastated domestic savings. In our view, the three add up to virtually prohibitive conditions for a self-sustaining recovery."
–Kurt Richebacher"When the Fed is the bartender everybody drinks until they fall down."
–Paul McCulley"Many folks seem to think that the dollar going down will magically solve our trade deficit. I disagree. We don’t export enough to solve our trade deficit. What we need to do is stop consuming beyond our means and start saving, which is what will be forced upon us eventually."
–Bill Fleckenstein"What lies ahead is the accelerating exit of foreign investors from the US markets. That will be bad enough. But if what lies ahead dawns upon a growing number of Americans, and if they too all decide to exit in ever growing numbers, then there is no possible economic salvation for the USA in any form at all."
–Bill Buckler"The monstrous credit and debt bubble in the United States, through years of overaccommodation by the Federal Reserve, has created an economy with an array of horrible and massive dislocations and imbalances that make a sustained recovery impossible."
–Kurt Richebacher"The largest Asian central banks have gone on record that they are curbing their purchases of US debt. And they are also diversifying their huge reserves, steadily moving away from the dollar. The risks have simply become too many and too serious."
–W. Joseph StroupeEditor, Global Events"Given the renewed drop in the dollar and our expected continued downward trend in the greenback’s foreign exchange value, we would expect the prices of imported consumer goods to rise at a faster rate going forward. In the event, we would also, then, expect core consumer goods inflation to remain on a rising trend."
–Paul Kasriel, Northern Trust"Dollar depreciation leads to higher inflation and ultimately forces foreign creditors to question their rationale and indeed their sanity for continuing purchases of U.S. Treasuries."
–Bill Gross"The falling U.S. dollar is killing foreign investors in U.S. dollars, bonds and in stocks."
–Bill Buckler
While they could have been true in 2003, the timing to consider them is more appropriate in 2005:
Earnings Growth peaked in 2004 (slower earnings growth + high valuations = higher risks); Earnings growth is strongest now in Energy and Materials (outliers, not leadership); fed has now moved 6 X and counting (not a positive historically); 2005 is a post election year suggesting above average risks and below average returns (historically); we are at the high end of trading range for cycle; inflation risks now clearly evident; private traders are ‘all in’; insider trading has spiked to historic extremes; bonds breaking down (finally pressuring consumer?); technology leadership clearly fading relative to past cycles.
A question: When these foreign central banks start dumping their dollar holdings, what will they buy? Will they stuff their home currency holdings in a giant mattress or will they buy other debt. How big is that market? Will they frantically bid up the debt prices and drive the foreign interest rates much lower? Or will they buy assets either tangible or intangible? If the assets are tangible such as precious metals, oil, food commodities, etc., how will they transport and store all of these goods? If intangible, where will they find a big enough market?
I suspect that the U.S. debt and equity markets are still the only big game in town and that the disaster speculation is merely a tempest in a teapot.
Mike.
Seems more likely that they simply diversify their holdings by allocating less to dollar assets in the future. Contrary to their own interest to create a panic isn’t it? On the other hand these countries have undeniable leverage in future negotiations with the U.S. After all they are becoming ‘owners’ in our country as they continue to aquire assets… just the mention of ‘diversifying’ gets our attention. The growing foreign holdings are just one piece of the current market picture.
I am not in the ‘disaster’ camp. However, at this point in time (and price) the risk:return appears unattractive. Being the biggest and most liquid market is unlikely to prevent normal cyclical swings in either direction.